Markets weathering lost harvest capacity

The risk going forward is whether packers can maintain such high slaughter rates.

Wes Ishmael

October 5, 2019

2 Min Read
Marketing cattle

Cash and futures fed cattle prices continued to increase this week as disruptions from the fire at the Tyson Foods beef processing plant in Kansas continue to wane.

“Despite the loss of roughly 5% of steer and heifer slaughter capacity, the packing industry has done a remarkable job of maintaining yearling slaughter, while total industry capacity is pushed very near to the limit,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his most recent weekly market comments.  

Peel explains weekday steer and heifer slaughter was down an average of 2% each of the first four weeks after the fire, compared to the previous year. But, slaughter totals for each Saturday were up an average of 22.3% for those same weeks.

“In total, steer and heifer slaughter in the four weeks after the fire was 2,016,178 head, an increase year over year of 12,562 head (up 0.6%). This was accomplished as a result of considerable logistical contortions and extra cost, including big Saturday kills and rerouting cattle to other plants farther away,” Peel says.

Elliott Dennis, Extension livestock economist at the University of Nebraska-Lincoln, points out uncertainty about packer ability to accommodate the void in capacity was a key driver behind increased Cattle futures volatility in the wake of the fire. As packers mostly kept up with the lost capacity, markets calmed and futures in recent weeks mostly climbed back to where they were before the fire.

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“How long packers are willing and able to maintain the status quo remains to be seen as cattle on feed 120+ days is larger than a year ago and plants are already running at high utilization levels,” Dennis says in the most recent issue of In the Cattle Markets.

“The risk going forward is whether the packing industry can continue to hold slaughter rates high through the end of the year under emergency conditions,” Peel explains. “Large Saturday kills are not only more costly but cannot be maintained indefinitely. There will continue to be stresses on fed cattle demand and flows of cattle to slaughter until the damaged plant returns to operation.”

Various reports continue to suggest Tyson expects the plant to be fully operational by the beginning of next year.

“Unlike milk markets, where disruption in processing often results in milk being dumped, it is clear that no significant backup of finished cattle occurred, despite the squeeze on packing capacity after the fire,” Peel says. “Any significant backlog of more than 2 million head of slaughter-ready cattle would have pushed carcass weights up. 

“However, in the four weeks after the fire, both steer and heifer carcass weights were down 4.25 pounds year over year, close to the year-to-date decreases of 4.97 pounds for steers and 5.46 pounds for heifers. Steer and heifer carcass weights are currently increasing to a seasonal peak, typically in October or November.” 

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